Stagflation: Implications For Gold and Silver

By: Stewart Thomson | Tue, Jan 12, 2016
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Graceland Updates 4am-7am
Jan 12, 2016

  1. At the end of the year, I always urge investors to stand aside from the US stock market. That's because major money managers tend to move large amounts of liquidity during the first week of January, setting the tone for the year.

  2. This year, the US stock market just put on what is arguably the worst first week of trading in the history of America!

  3. To view the RBS (Royal Bank of Scotland) take on this dangerous situation, please click here now. I think that picture speaks about a thousand frightening words.

  4. For a more detailed view, please click here now. Clearly, some of the world's top economists are very concerned about the ramifications of Janet Yellen's rate hike policy.

  5. My own view is quite different. Mine is that "Rate hikes rock!" That's because I'm firmly committed to the view that rate hikes will benefit main street America, while putting severe and rightful pressure on Wall Street and the US government.

  6. US consumer spending, borrowing, and saving all appear to be rising, while overall GDP declines. The Fed has begun to shrink its balance sheet, and wage inflation has ticked up. This is a very good situation, for gold price enthusiasts around the world!

  7. Please click here now. Double-click to enlarge. That's the daily dollar versus yen chart.

  8. The dollar has staged a major breakdown against the yen, and large FOREX traders tend to base their dollar-gold trades on the dollar-yen chart action, more than on movements in the overall dollar index (USDX).

  9. Please click here now. Double-click to enlarge. That's the daily gold chart. In the short term, I expect the dollar to rally a bit against the yen, and that could push gold modestly down, to the $1070 - $1080 area.

  10. From there, I expect the dollar to stage a major decline against the yen, creating a massive rally in gold.

  11. Right now, the yuan is declining against the dollar. That yuan weakness is putting a lot of pressure on oil and global stock markets.

  12. Please click here now. That's the daily oil chart. Strong supply and drooping demand is quickly filling up available storage tanks.

  13. If those tanks reach capacity, oil traders could panic, and oil could crash to the $15 - $20 area, and that would probably create a crash in global stock markets. Please click here now. Double-click to enlarge this daily Dow chart. I expect the Dow to swoon again, but not until it stages a very powerful rally.

  14. The yen and gold bullion will likely function as the world's only safe havens, as Janet Yellen unveils more rate hikes, stunning most analysts.

  15. As oil goes lower, and the Fed pushes money off its balance sheet and into the commercial banking system, main street America won't exactly "glitter like gold", but it will stage significant relative outperformance versus corporate Wall Street. Consumers will both save and spend, and wages will rise.

  16. Ultimately, that's fabulous news for gold stocks, but in the short term gold stocks may not shine as brightly as bullion.

  17. On that note, please click here now. Double-click to enlarge this daily GDX chart.

  18. Many amateur technicians have probably worked overly hard recently, in an effort to call "ultimate lows" and "fresh big declines" for gold and gold stocks. The reality of the situation appears to be more mundane; most gold stocks did signal a rally for gold bullion, by refusing to confirm gold's late 2015 decline below the summer lows.

  19. That was positive news for gold, but gold stocks themselves are unlikely to stage any kind of "barn burner" rally, until Janet Yellen unveils more rate hikes and the Fed chops its balance sheet, making stagflation become widely recognized.

  20. The exception to this "rule" will be the South African miners, where the tumbling rand currency is becoming a major booster shot to company profits, and share prices.

  21. Please click here now. That's the daily Harmony mining chart. In less than two months, while GDX has barely moved higher, Harmony has almost tripled!

  22. Many Western gold stock investors have bitter memories of mine-crippling strikes and theft, in the 1970s. The bottom line is that was then, and this is now; China and India weren't looking to secure long term supplies of gold in the 1970s. They are doing so now.

  23. South Africa has many of the world's big reserve mines, and even a modest recovery in the overall gold price would create substantial profits for many miners there.

  24. What about silver? Please click here now. Double-click to enlarge this daily silver chart. In the short term, silver could slip a dollar or so, on the downside. That's because the "stag" part of stagflation (lower GDP and stagnant stock markets) is now apparent, but the "flation" (inflation) part of the equation requires more time to present itself. I'll dare to suggest that all silver price enthusiasts need to be aggressive buyers of any short term price weakness, because the winds of stagflation can grow in intensity, with shocking speed!

Thanks!
Cheers
st

 


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Stewart Thomson

Author: Stewart Thomson

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Stewart Thomson
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